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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Assets disposed of: series of transactions: approach

It will not be possible to identify a series of linked transactions until the second transaction has taken place. The gain on the first transaction will therefore be computed initially on normal rules. When the second transaction has taken place, you will have to rework the computation in respect of the first transaction to apply the provisions of TCGA92/S19.

If the series involves more than two transactions, on the occasion of each later transaction the number of assets disposed of will change. As a result, after each transaction has taken place, it is necessary to

  • establish the aggregate market value of the revised number of assets at the date of each transaction in the series (within the six year period ending on the date of the latest transaction) and
  • rework the computations in respect of earlier disposals (within that six year period) to take account of the revised aggregate market values.

This example illustrates the operation of TCGA92/S19.

In April 1980 Mrs A acquired 100 shares in an unquoted company for £80 per share. She has made an election under TCGA92/S35 (5) and Shares and Assets Valuation has agreed the value of the shares at 31 March 1982 as £100 per share. She makes the following transfers to her daughter:

1 March 1988 40 shares
   
1 October 1991 40 shares
1 July 1994 20 shares

For the purposes of this example, the market values of various quantities of shares in the company are:

Date Number of shares      
         
  20 40 60 80
March 1988   £ 10,000   £ 60,000
October 1991   £ 12,000 £ 36,000 £ 80,000
July 1994 £ 10,000   £ 57,000  

The 40 shares transferred on 1 March 1988 are deemed to pass at market value, TCGA92/S17 and TCGA92/S18:

  Deemed consideration   10,000
       
LESS Cost 40 x £100 4,000
  Unindexed gain   6,000
LESS Indexation 4000 x .337 1,348
  CHARGEABLE GAIN   4,652

The transfer of 40 shares on 1 October 1991 creates a series of linked transactions and TCGA92/S19 comes into operation.

It is necessary to reconsider the 1988-89 computation

Compare the original market value adopted £10,000

with the appropriate portion (that is 40 shares)

                                                                             80 shares)

of the aggregate market value of 80 shares as at 1 May 19988 40/80 x £60,000 = £ 30,000    
       
The latter value is greater and so the 1988-89 computation must be reworked:      
  Deemed consideration   £ 30,000
LESS Cost 40 x £ 100 £ 4,000
  Unindexed gain   $ 26,000
LESS Indexation 4,000 x .337 £ 1,348
  Chargeable Gain   £ 24,652

For the transfer in 1991-92

COMPARE the value which would otherwise apply

(that is, the original market value of 40 shares

as at 1 October 1991) = £12,000

with the appropriate portion (that is 40 shares)

                                                                             80 shares)

of the aggregate market value of 80 shares

as at 1 October 1991; 40/80 x £80,000 = £40,000

The latter value is greater and so it is substituted as the deemed consideration;

  Deemed consideration   £ 40,000
       
LESS Cost 40 x £100 £ 4,000
  Unindexed gain   £ 36,000
LESS Indexation 4,000 x .701 £ 2,804
  CHARGEABLE GAIN   £ 33,196

On the transfer of 20 shares in 1994-95, the provisions of Section 19 apply, but only in relation to the transfers on 1 October 1991 and June 1994. The transfer on 1 May 1988 is disregarded because it was more than six years before the latest transaction.

It is necessary to reconsider the 1991-92 computation:

COMPARE the value adopted following the

previous application of Section 19 on

October 1991 = £40,000

with the appropriate portion (that is 40 shares)

                                                                             60 shares)

of the aggregate market value of 60 shares

as at 1 October 1991; 40/60 x £36,000 = £24,000

The latter value is not greater than the former and so it is not necessary to recompute the 1991-92 capital gain.

For the transfer in 1994-95

COMPARE the value which would otherwise

apply (that is, the original market value of

shares as at 1 July 1994)= £10,000

with the appropriate portion (that is 20 shares)

                                                                             60 shares)*

of the aggregate market value of 60 shares

as at 1 June 1994; 20/60 x £57,000 = £19,000

The latter value is greater and so it is substituted

as the deemed consideration;

  Deemed consideration   £ 19,000
       
LESS Cost 20 x £100 £ 2,000
  Unidexed gain   £ 17,000
LESS Indexation 2000 x .821 £ 1,642
  CHARGEABLE GAIN   £ 15,358

NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207+ and for taper relief see CG17895+.